DC Annuities and Retirement Insurance Products Flashcards

A DC insurer's 'general account' is used to back which type of annuity product?

Answer: Fixed annuities and fixed components of indexed annuities

Fixed annuities and fixed interest options are backed by the insurer's general account, which pools policyholder funds in conservative investments to support guaranteed obligations.

In DC, which organization provides a safety net for annuity contract holders if a licensed life insurer becomes insolvent?

Answer: The DC Life and Health Insurance Guaranty Association

The DC Life and Health Insurance Guaranty Association covers eligible annuity contracts up to statutory limits if a member insurer becomes insolvent.

A DC producer sells an annuity to an elderly client and misrepresents surrender charges to induce the sale. This conduct could result in:

Answer: License suspension or revocation and possible civil liability

Misrepresenting material facts—such as surrender charges—to sell an annuity is a serious violation of DC insurance law that can result in license suspension, revocation, and civil penalties.

The 'annuity exclusion ratio' determines what portion of each annuity payment a DC taxpayer may exclude from gross income. It is calculated as:

Answer: The ratio of after-tax premiums paid to the expected total return from the annuity

The exclusion ratio (investment in contract ÷ expected return) determines the non-taxable return-of-basis portion of each annuity payment under federal tax rules.

A DC annuity that allows the contract owner to allocate premiums among multiple investment sub-accounts and switch between them is called a:

Answer: Variable annuity

Variable annuities allow owners to allocate funds among various investment sub-accounts (stocks, bonds, money market) and adjust those allocations over time.

Under DC insurance regulations, agents selling annuities to seniors (typically age 65+) must follow enhanced suitability standards primarily because:

Answer: Seniors are a protected class more vulnerable to unsuitable or high-pressure sales tactics

DC, following NAIC model regulations, imposes enhanced suitability and sales practice standards for annuity sales to seniors to protect older consumers who may be more susceptible to financial exploitation.